* LSE to raise $1.6 bln in 3 for 11 rights issue
* Shares offered at 1,295 pence, 30.1 percent discount
* LSE Q1 operating profit up 36 percent
* Shares close up 1.2 percent
(Adds Russell's H1 results, estimated earnings for combined
group, updates share price)
By Pamela Barbaglia and Clare Hutchison
LONDON, Aug 22 London Stock Exchange Group Plc
is raising 938 million pounds ($1.6 billion) in its
first rights issue of new stock to part fund the acquisition of
U.S. indexes group Frank Russell.
Europe's oldest independent bourse unveiled plans to buy
Frank Russell for $2.7 billion in June to move deeper into the
U.S. financial services market, where half of global assets
under management (AUM) are based. LSE said then it would help
fund the purchase by issuing new shares.
The exchange said on Friday it would offer 74,347,813 new
shares at 1,295 pence apiece, a 30.1 percent discount to their
Aug. 21 closing price. Shareholders will have the right to buy
three new shares for every 11 already held.
The deal gives LSE, owner of indexes business FTSE, third
place in the booming market for exchange traded funds (ETFs),
low-cost funds giving an alternative to active fund management,
after market leaders S&P Dow Jones and MSCI.
The discount compares with a typical 30 to 40 percent range
seen in similar recent UK deals, such as defence group Babcock's
$1.8 billion rights issue, in which the shares were
offered at a 34.5 percent discount, according to data compiled
David Warren, LSE's chief financial officer, said the size
of the discount showed strong support for the Russell deal. "We
have been in close contact with our major shareholders ... and
there has been positive reception to the acquisition."
LSE shares closed 1.2 percent higher at 2,029p. The stock
has risen more than 2 percent since details of the acquisition
were given in June.
The deal, which is expected to boost earnings in the first
full year after the merger, will create an index compiler with
some $9.2 trillion of assets benchmarked against the performance
of its market measures, which include the UK's FTSE 100.
Russell, founded in 1936 and based in Seattle, owns an index
division that operates equity benchmark gauges, such as the
Russell 2000 Index, and an investment management arm with assets
under management of $279.7 billion.
Its revenue in the first six months was $875.2 million, up
almost 12 percent year-on-year, while profit before tax more
than doubled to $124.1 million, according to data released on
Friday in the rights issue prospectus.
The document includes estimated earnings for the combined
group, had the acquisition been completed on April 1, showing
annual income at 2.2 billion pounds and profit at 194.8 million.
LSE is to integrate Russell into its information services
division, but it will its retain its own brand.
Warren gave no update on LSE's plans for Russell's asset
management arm. The company said in June it was working with
Russell chief Len Brennan to determine its fit with the enlarged
group. The review is expected to be completed around the time
the transaction closes, expected at the end of the year. Brennan
will then join LSE's executive committee.
LSE said it intends to continue paying dividends on a
"progressive" basis after the Russell deal, with future payments
adjusted to take account of the increased number of shares.
LSE also reported a 36 percent increase in operating profit
to 102 million pounds in the three months through June, on
revenue up 20 percent at 300 million.
Warren said the group had made a positive start to the year,
seeing good trading in equities and fixed income in July, and so
far in August. The number of new issues on its markets also rose
in July from a year earlier.
The rights issue has been fully underwritten by Barclays
, RBC Capital Markets, Deutsche Bank,
JP Morgan Cazenove, Banca IMI, Banco Santander
, HSBC and Mitsubishi UFJ Securities.
It is due to complete by the end of September.
The new ordinary shares represent 27.3 percent of the
existing share capital and would be 21.4 percent of the enlarged
issued share capital, following the rights issue.
LSE will pay the remaining $1.1 billion for Frank Russell
with existing bank debt facilities. It said the deal will leave
it with net debt of 2.4 times core earnings or EBITDA, which it
aims to cut to 2 times in the 12 months after completion.
(1 US dollar = 0.6028 British pound)
(Editing by David Clarke and David Holmes)